Summary Of AI Boom Cautiousness
The AI Narrative that has powered the rally in the markets for the past three years has equities in extreme valuation territory.
The huge surge in tech spending has powered 20%-plus EPS growth from the Magificent Seven while the rest of the market has seen tepid profit growth.
This is projected to change for the positive in 2026 and 2027, potentially broadening market breadth.
However, there are many potential sources for the trigger that eventually pops the AI Bubble.
The article below discusses several of these potential triggers in detail and concludes with the most likely event that will result in a bear market following the AI Boom.
In addition, there has been very little profit growth from the S&P 493 since 2023, roughly three percent annually over the past three years. That is projected to rise significantly in 2026 and 2027, which hopefully helps broaden the rally within equities. Meanwhile, the Magnificent Seven keeps churning out 20%-plus EPS growth.
I agree with Howard Marks, co-founder of Oaktree Capital Management, recent observation that the AI Revolution will travel the same road as every other technology paradigm shift before it, whether it be electrification, the railroads, the invention of the automobile, or the birth of the internet. Eventually, the bubble will pop, pushing equities into a bear market.
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